When Less is More: the Scarcity Principle Explained

June 9, 20224 min read
When Less is More: the Scarcity Principle Explained
Share on facebookShare on TwitterShare on Linkedin

Key takeaways

  • The scarcity principle is an economic theory that says items high in demand but low in supply will increase in price.
  • Under the scarcity principle, supply and demand is mismatched and price has to compensate for this discrepancy.
  • The investment thesis supporting passion assets such as luxury watches, fine wine and art is rooted in the scarcity principle. While returns on these investments vary, some consistently beat traditional investment indexes, such as the S&P 500. 

What does a vintage bottle of wine, a discontinued Twinkie and a Supreme T-shirt from 2006 have in common? Their surprisingly hefty price tags.

The bottle of wine in question, dating back to World War II, auctioned at 17 times the original price at $558,000 while the once discontinued Twinkie went for $5,000 a pop on Ebay. The Supreme T-Shirt, tie-dyed and considered “vintage” sold for $52,000,  reiterating the brand’s cult following. 

These examples demonstrate the range of applicability for the scarcity principle, an economic theory that says items high in demand but low in supply will increase in price. Investors often apply the theory when they acquire passion assets, such as art, luxury watches or jewelry and wine, all expected to appreciate over time. The investments vary in their returns but some consistently beat traditional investment indecises, such as the S&P 500. 

The thrill is in the chase…and the perception

The scarcity principle is rooted in psychology. Studies have shown that when a goods or a service is perceived to be scarce, people generally want it more. This has to do with consumers believing the scarce good is also a quality good, or the scarce good is worth the chase, or both. Using marketing techniques that include buzzwords such as “limited time offer”, “limited quantity” and “while supplies last”, businesses often take advantage of this mentality. 

Supply, Demand and Equilibrium (or lack thereof)

An economic understanding of the scarcity principle requires some insight into supply and demand theory, the pillar of modern economics. The theory is really made up of two separate “laws”, the law of demand and the law of supply. Under ideal conditions, the relationship between these laws is a balancing act – an over-supply of goods or services causes prices to go down, which results in higher demand, while an under-supply or shortage causes prices to go up, resulting in less demand. The two curves representing these trends on a graph are said to intersect at one specific point, where market equilibrium is achieved.

The equilibrium price is the point at which consumers and producers meet, or when supply equals demand. At this price, the amount consumers want to buy of the product – quantity demanded – is equal to the amount producers want to sell – quantity supplied. 

Popular economic models dictate that markets are always moving toward equilibrium, but don’t always achieve or maintain it. Markets can be at mismatched levels of supply and demand for a variety of reasons (not factored into ideal conditions), a state known as disequilibrium until other factors compensate for the discrepancy. 

Under the scarcity principle, supply and demand is at a disequilibrium and price compensates for the discrepancy (by going up) until equilibrium is achieved. When a product is scarce, consumers are often doing their own cost benefit analysis, where their perceived benefit of having the product outweighs the cost associated with obtaining it. 

Scarcity principle and passion art investments

Luxury pieces are often thought of as investment pieces, especially when trying to justify a particularly expensive purchase. In economic terms that’s only true if the item appreciates in value over time.  

The watch industry is the most lucrative fashion example of the scarcity principle. Renowned watch brands such as Patek Philippe and Rolex consistently beat two of the most popular stock market indices, the American S&P 500 and the British FTSE 100, even after continued supply shortages that lead to long waiting times. The highest yielding watch brand has gone to Patek Philippe with a return of investment (ROI) of 207% over the past five years, followed by Audemars Piguet at 158%. 

Fine wine is even more intensely dictated by the scarcity principle. Because wine quality varies seasonally and by geography, where the weather and soil conditions play a significant role, a bottle that originated in a specific year with favorable conditions can be extremely scarce. At the same time, once the wine is consumed the remaining bottles from that year become even scarcer, further driving up the value . According to Liv-Ex, a global marketplace for fine wine, the two-year return of 25.68% for fine wine has beaten returns from gold and crude oil. 

The art industry is rooted in the scarcity principle, with artists creating very limited copies of their work. While it’s hard to pin down return rates for art, which vary by artist and trends for the year of sale, aggregate sales of art and antiques by dealers and auction houses were estimated at $65.1 billion in 2021, with expectations for it to grow in 2022.

Yieldstreet and passion assets

Yieldstreet has been offering access to passion assets like art equity and debt opportunities on its platform. 

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure